FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 04 November 2015

This Quarter's Biggest Earnings Takeaway Tells Us To Invest Here

by Keith Fitz-Gerald, Money Morning

Money Morning Article of the Week

A theme so far this earnings season is U.S. companies warning of an economic slowdown. With about half of the S&P 500 companies having reported already, many are citing protracted declines in production, sales, and employment that will track into 2016.

The press is treating this as a surprise, yet I'm hard-pressed to understand how...

We've been talking about the decline in revenue and earnings for more than a year and prepared accordingly. I've shown readers how to move your money into the best quality companies and simultaneously tighten up your risk management controls - often at a profit.

But what's becoming more clear from this earnings trend is just how much the Federal Reserve's misguided policies have hurt the U.S. consumer - and how that will affect company revenue and share prices.

Just take a look at these numbers - plus I'll give you two stocks that will help your portfolio thrive in a slowing earnings environment...

Why Earnings Will Continue to Fall

So far this quarter just 41.5% of companies reporting have beaten quarterly revenue estimates. That's down from more than 70% in late 2009.


Earnings is the much more common stat to focus on for the simple reason that talking about the 77% of companies that have beaten earnings estimates so far this season is more palatable.

The problem - and what everybody is missing - is that you can fudge earnings. Any decent CFO can swing them by a few percent by drawing on reserves or using special accounting tricks or simple hedges.

But you cannot fudge top line numbers. Either you've got the sales or you don't.

The average S&P 500 company expects a profit drop of nearly 6% alongside a revenue drop of 3.3% in Q3. This revenue dip follows a 3.3% revenue decline in Q2 and a 2% fall in Q1, according to FactSet.

The last time we saw four consecutive negative quarters of revenue was 2008-2009. Falling revenue tells me one thing: Consumers cannot afford to pay up for the inflation the Fed thinks is so important.

New data from the Social Security Administration shows that 51% of working Americans - 1 in 2 - make less than $30,000 a year. The poverty line for a family of four is $24,250.

This is a scathing indictment of the Fed's policy; the middle class is being eviscerated. You have Middle America household wealth going down, people making less money, and people with less savings to begin with...

So companies are turning to serious discounting as a means of moving merchandise. That, in turn, causes profits to fall.

Look at Wal-Mart Stores Inc. (NYSE: WMT). The retail giant forecast a profit drop in 2016 of 6% to 12% when it reported Q3 earnings Oct. 14.

More than 100 million Americans shop at Wal-Mart weekly, so that dramatic drop in earnings projections tells me that the middle class is in more trouble than previously acknowledged. The recovery Washington thinks is moving along is actually shifting into reverse.

The troubled consumer/retail discounts/lower profits chain is a vicious cycle. For investors, it speaks to why we will continue to avoid consumer discretionary stocks for the foreseeable future.

This may take the press by surprise, but you can be prepared for slow earnings over the next few quarters. Continue to build defensive positions in companies selling "must have" products the world cannot live without.

Here's a couple we like now:

Raytheon Co. (NYSE: RTN) is a $32.6 billion defense contractor that provides governments around the world with state-of-the-art electronics, mission systems integration, and other weapons capabilities.

RTN has been one of the best performers for my Money Map Report subscribers. It has nearly tripled since I first recommended it to them in August 2011. Raytheon is also a dividend star, with yield of 2.25%. The company has raised payouts seven times in the last seven years, and its payout has grown at a 141% growth rate. With a payout ratio of 36%, this dividend has room to climb.

The Boeing Co. (NYSE: BA) is a $93.8 billion defense company - and the world's largest aerospace company. In its Q3 earnings report out on Oct. 21, Boeing raised its 2015 profit and revenue guidance. Its earnings success is unsurprising considering a continued demand for aircraft in a global rearmament trend led by the United States, Russia, China, and Saudi Arabia.

I particularly like the company's proven ability (and desire) to raise dividend payouts aggressively over time. The company has hiked its dividend five times in the last seven years, going from a $0.40/share payout to $0.90/share - a 127% increase that's all the more impressive considering it took place during some of the worst financial conditions the world has ever seen.

The just-announced budget deal reached in Congress will have the effect of boosting defense spending by $40 billion through fiscal 2017 - while adding tens of billions of dollars to the Pentagon's budget for experimental military technologies. That's a major potential catalyst for these defense contractors, who have already won more than $1.2 billion worth of contracts after a burst of deals announced this week alone.

As defense contractors everywhere continue to shrug off the shackles of Washington's sequestration, I expect the incredible run of "must have" companies like RTN and others to continue into fiscal 2017 and beyond - no matter what's in store for retailers and their "nice to have" cousins.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Investing


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
The Destruction of the Existing Workforce
Finance and Growth: The Direction of Causality
News Blog
How Repealing Portions Of The Affordable Care Act Would Affect Health Insurance Coverage And Premiums
Grassroots Terrorism In 2017: A Small But Stubborn Threat
Earthquake Risk: Spotlight On Canada
Federal Income Taxes By Income Bracket
Infographic Of The Day: Guide To Caring For Your First Dog
Early Headlines: Migrants Incr. 41 Pct This Century, Women's March Largest Ever?, GOP ACA Disarray, Trump Hit With Ethics Complaint, Trump Back To '29?, May And Nieto To Visit Trump And More
New Seasonal Outlook Updates from NOAA and JAMSTEC Disagree Dramatically
Earnings And Economic Reports: Week Starting 23 January 2017
France And Germany Differ Starkly On Strong Leaders
Most Flags Combine Red, White And Blue
Electroconvulsive Therapy: A History Of Controversy, But Also Of Help
Super Bowl Ad Prices Doubled In A Decade
What We Read Today 21 January 2017
Investing Blog
The Week Ahead: Political Uncertainty And Market Volatility
Investors: How Not To Lose Everything And Die Broke
Opinion Blog
Retailing In America: Bricks And Torture
Economics, Society, And The Environment: What's Wrong With This Picture?
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
20Jan2017 Market Close: U.S. Stocks Were Up But Off Their Highs Of The Session, Crude Prices Continue To Climb, Next Week May Be Volatile
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved